Fixed-Rate vs. Adjustable-Rate Mortgages (ARMs)

Fixed-rate and adjustable-rate mortgages are two of the most popular loan types for buying a home or refinancing your mortgage (including cash-out refinances). Both options are available for conventional conforming loan amounts, jumbo (non-conforming) loan amounts, and FHA or VA programs.

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Conventional conforming mortgage A mortgage that is not obtained under a government program (FHA or VA) and satisfies the underwriting guidelines and loan limits set by Fannie Mae or Freddie Mac.

Principal and interest (P&I) The 2 main components of your monthly payment. The principal portion reduces your loan balance, while the interest is your cost for using the principal. Your monthly payments may include taxes and insurance in addition to P&I.

Interest-rate cap A limit on the amount your interest rate can increase or decrease. Periodic caps limit the increase or decrease from 1 adjustment period to the next. Lifetime caps limit the increase or decrease over the life of the loan.